Minnesota State Tax Guide

Minnesota State Tax: Overview

Minnesota's state income tax rates start at a high of 5.35%, and sales tax rates are on the high end when compared to other states. Additionally, Minnesota has an estate tax that applies to estates over $3 million, which is a lower threshold than for estates subject to the federal estate tax. 

The good news is that Minnesota is becoming a more "tax-friendly" state for retirees thanks to a new state tax cut bill that eliminates income tax on some retirement benefits. 

[Data for this state tax guide was gathered from several sources including the U.S. Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]

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Minnesota State Tax: Income Taxes

Minnesota's income taxes are relatively high, and the state only has four income tax brackets, meaning some taxpayers with lower incomes could pay the same tax rate as those earning significantly more. 

For example, a single filer with $31,000 of taxable income pays the same tax rate as a single filer with $95,000 of taxable income. 

Minnesota tax on retirement benefits: Private and government pension plans are taxable, but Minnesota offers an income tax subtraction for military pensions. Railroad Retirement benefits are tax-exempt in Minnesota.

New legislation exempts Social Security retirement benefits for many older adults.

• Single filers making $78,000 or less will not pay state income tax on Social Security benefits.
• For married filing jointly, income must be $100,000 or less for Social Security income to be tax-exempt in Minnesota.

Minnesota Income Tax Range: Single filers

Minnesota Income Tax Range: Married filing separately

Minnesota Income Tax Range: Married filing jointly

Minnesota Income Tax Range: Head of household

Minnesota Sales Tax

The state sales tax rate in Minnesota is 6.875%, but localities can add as much as 2% on top of the state's rate, according to the Tax Foundation. While Minnesota's sales tax rate is higher than most other states, plenty of necessities are tax-exempt.

• Groceries are tax exempt.
• Clothing is tax-exempt.
• Prescription drugs are tax-exempt.

How Much Are Property Taxes in Minnesota?

In Minnesota, the average effective property tax rate is 1.11%.

Minnesota Property Tax Breaks for Retirees

Senior Citizen Property Tax Deferral Program: This program allows people age 65 or older, whose household income is $60,000 or less, to defer a portion of the property tax on their home. Here's how it works:

• The homeowner pays 3% of the household's prior year income.
• The state pays the amount over 3% (deferred tax), which becomes a loan.
• Homeowners will have a lien attached to their property.
• The loan will accrue interest but will not exceed 5%.

(Note: Homeowners may need to meet other criteria to qualify.)

Minnesota Motor Vehicle Taxes

Motor vehicles are exempt from ordinary sales tax in Minnesota. There is a 6.5% excise tax on motor vehicle purchases, but certain older and collector vehicles may be subject to a reduced tax rate.

The state excise tax on gasoline is $0.285 per gallon, according to the Tax Policy Center.

Minnesota Taxes on Alcohol and Tobacco

Minnesota Estate and Inheritance Taxes

Minnesota's estate tax exemption is $3 million, but taxable gifts (more than $17,000 per recipient) given within three years of death may be included in the estate. Tax rates range from 13% to 16%. Minnesota does not have an inheritance tax.

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